Plastic payers unplugged

Credit-card holders are running up debts of £1.7bn a month using their plastic to pay utility bills. Despite high rates of interest charged on most cards - up to 20 per cent is not uncommon - cardholders spent 68.5 per cent more on the services sector in February than they did a year ago.

The figures, from the Credit Card Research Group, include spending on electricity, gas and water bills, along with payments for insurance, medical and funeral services.

However, Ofgem, the gas and electricity watchdog, is unconcerned that customers are running up debts. "It is up to the individual how they pay their bills," said a spokesman.

"We make pricing information available, but if companies are offering customers the choice, as a general rule we have no objection."

Even though Ofgem is taking no action, Howard Davies, head of the Financial Services Authority (FSA), the City regulator, announced recently that he would investigate unsecured lending.

"While we would not tell people how to pay their bills, we are concerned about whether credit card providers have proper lending strategies before giving cards to customers," said an FSA spokeswoman.

With demand for debt counselling "rising quite rapidly" in recent months, says the Consumer Credit Counselling Service (CCCS), the evidence suggests cardholders are not keeping debt under control.

"There is a growing tendency for people to pay for things with their credit card which they wouldn't have done in the past," said Malcolm Hurlston, chairman of the CCCS. "This is fine as long as they keep it under control. But for those in difficulty already, it makes matters worse."

As credit cards are so easy to use, many people find it simpler to hand their number over than pay by direct debit, which works out cheaper.

Isobel Hoseason, spokeswoman for Powergen, said the company accepts credit cards, but admitted that direct debit is much cheaper. "Credit cards are not our normal method of payment. A third of our customers pay by direct debit or debit card - either via the telephone or online. We offer a £10 annual discount if you pay monthly by direct debit."

Spending by debit card on services has also increased - by 101.2 per cent - but at least no interest payments are incurred if customers don't pay their balance off in full at the end of the month.